Will SEBI's new rules change the derivatives game?
What's the story
The Securities and Exchange Board of India (SEBI) is preparing to enforce stricter regulations for derivative trading, in an effort to curb retail investor speculation in high-risk contracts. According to Reuters, the new rules are expected to be announced later this month. These will include limiting options contract expiries and significantly increasing the minimum trading amount.
Regulatory changes
SEBI's new regulations: A closer look
Under the new regulations, contract expiries will be limited to one per week for each exchange, a significant reduction from the current frequency. The minimum trading amount is set to rise substantially from the existing ₹5 lakh to a range of ₹15 lakh-₹20 lakh. These measures are being introduced in response to concerns about the rapid growth of India's derivatives market.
Public feedback
SEBI's response to public consultation on proposed changes
The regulatory changes follow a public consultation process that received nearly 10,000 comments, primarily from traders and brokers opposing the proposed alterations. Despite resistance, SEBI is determined to implement key aspects of its initial proposal. "A key objective was to put an end to the large and rising speculative volumes in index options contracts close to expiry," a source close to the matter told Reuters.
Revision considerations
SEBI reconsiders aspects of initial proposal
SEBI is reportedly reconsidering some elements of its initial proposal, including changes to margin requirements and intraday position monitoring. This reconsideration comes after feedback from market participants and technical issues raised by exchanges. The regulatory changes are part of broader efforts to discourage excessive retail participation in derivatives trading, following a tax increase on such transactions implemented in July.
Market trends
Concerns over unchecked growth in retail derivatives trading
The government is concerned about the potential risks associated with unchecked growth in retail derivatives trading. As per fresh data, individual investors now account for 41% of index options trading, a significant increase from just 2% six years ago. This trend has prompted authorities to take action to protect retail investors and maintain market stability.